Going, going, gone for ... how much?

The highest price ever paid for a Francis Bacon (£14 million), for a photograph (an Andreas Gursky, £1.7m), for a work by a living European (a Peter Doig, £5.7m)... all auction records were shattered in London last week. But who is buying art at these prices - and, frankly, is it worth it? Carole Cadwalladr went in search of the top bidders

Study for Portrait II by Francis Bacon which was sold for £14m. Photograph: Matt Dunham/PA

There's nothing like accosting very, very rich people and asking them banal yet impertinent questions to make you feel like a socially challenged misfit with poor personal hygiene. By the middle of the week I start to wonder if maybe I do actually smell. Outside Christie's salesroom on Tuesday night I stop a nervous-looking man with bouffy hair who gives me a classic polite-but-rude brush off.

Are you buying? I ask. Selling? Just watching?

'No,' he says.

No - you're not buying? Or no, you're not selling?

'Neither.'

There's a long, long pause, and then, 'I'm just making sure things go OK. I... work here now.' 'Now?' I think - and it's not until then that I spot the high Hanoverian forehead and Princess Margaret's nose. I've only gone and accosted Viscount Linley! Who, I find out later, just so happens to be the new chairman of Christie's. He slips away, but one of the many things I've learnt this week is that I have one great advantage over the ultra-poshos, namely bad manners: I simply trail right after him: 'Do you think the boom will continue?'

'Everybody's going in now. Good night.'

Really I have to say this is a poor answer. But it's broadly typical of how my week went. The rich, particularly the British rich, aren't so keen on chitchat (the Italians, on the other hand, spell out their names and practically offer to write down their addresses and bank sort codes for you). As a rule, no one in the art world will give you a straight answer when a bit of flannel will do. And after interviewing and talking to dozens of people about the state of the art market, I reach the conclusion that you might as well get out a divining rod and call up Mystic Meg.

There's a lot of people who think they know what they're talking about - but then, that's a public-school education for you. By the end of the week I am of the theory that no one actually knows anything. You might as well read runes, or talk to Viscount Linley, or simply take what seemed to be the most popular strategy of the week: buy what everyone else is buying, but simply pay more for it.

There's a theory, of course, that good art is the most expensive art, but I wouldn't necessarily say that anyone really believes this any more. I watched a sappy-looking Renoir go under the hammer on Monday for £6.1 million, but it was hard to follow the bidding owing to the fact that it was almost drowned out by the snorts of derision from the people around me. And on Tuesday an unspectacular oil by Morisot went for four times the estimate, largely because, so the expert next to me believed, it featured a small fluffy cat.

First, some facts. Every February Sotheby's, Christie's and, to a lesser extent, Phillips, hold art sales. New York is the centre of the art world and traditionally the London sales are where the houses sell fewer works of inferior quality to smaller numbers of people. But no more. This week they broke all records, selling more paintings at higher prices to more people than ever before.

It made headlines all week long. A portrait of Pope Innocent X by Francis Bacon sold for £14m - almost double the price of any previous Bacon painting sold at auction. A landscape by Peter Doig inspired by the film Friday the 13th went for £5.7m, making it the most expensive work ever sold by a European living artist and very nearly the most expensive by any living artist. A photographic diptych of an American supermarket by Andreas Gursky became, at £1.7m, the world's most expensive photograph. Forty-three artists sold at higher prices than they'd ever sold before. In all, more than £360m was spent on art in a single week.

It's another world, of course. And these folk, the art-collecting-dealing-agenting-owning folk, are not like most regular folk. But still, I can't help wondering if they all missed Harry Enfield's Loadsamoney. Maybe it's just what happens if you're too posh for telly, but I can't believe that none of them remembers the Eighties. When, to refresh your memory, the art market went crazy, crazy, crazy and then crashed and burnt. Is an oil painting of Stalin by an unknown artist really worth £140,000, 15 times more than its estimate, just because it belongs to AA Gill, who got his friend Damien Hirst to add a red circle to his nose? Does paying prices which have multiplied by 19 times over five years for an artist whom no one outside the art world has ever heard of not seem, well, just a trifle incautious? (Sotheby's first sold Peter Doig in 2001 for £300,000.)

Still, it's fun to watch. Particularly as a rank outsider. At the first auction I go to, the Impressionism and Modern sale at Sotheby's on Monday, the room is rammed. There are seats for around 350 buyers with another couple of hundred standing at the back.

Down the left hand side is the press. And opposite are ranks and ranks of Sotheby's staff manning the telephones. There is, it has to be said, a lot of floppy hair around and slightly overbred chins: it's what a call centre would be like if it was manned by Etonians - which, of course, is exactly what it is.

I lose my cool very early on. Lot 3, a sculpture by Wilhelm Lehmbruck, starts at £150,000, sails past the lower estimate of £250,000, past the higher estimate of £350,000 and then keeps on going: £400,000, £420,000, £500,000, £600,000... When it reaches a million, I actually gasp. This is so not cool. As the week progresses, I see lot after lot go for twice, three times, four times the estimate. But I'd met the owner of the Lehmbruck (and can't help myself) - a nervous Canadian lecturer whose family had owned it in the Thirties. They had a Mies van der Rohe house in the Sudetenland until the Gestapo came and occupied it and the sculpture simply vanished. No one knew where it was until last year when someone happened to notice that it was on display in the Moravian Museum in Brno - and they restituted it through the courts.

'What I wonder,' he told me, 'is, how much of the other stuff here is looted?' It's a fair question. And how much is actually authentic is another good question. Hector Paterson, an art agent I chat to, suggests the answer is not as much as you might think. 'Provenance is a grey, grey area,' he says. And it wasn't so very long ago either that Sotheby's and Christie's were caught price-fixing. On the way into the auction room, a Polish man whom I try to step past (he really does have a personal hygiene problem) waylays me and insists that the auctioneers and dealers are all in cahoots and the whole thing's rigged.

If they are, though, it won't be me who spots it. I watch lot after lot but only rarely manage to catch sight of an actual person bidding. It's like trying to spot tigers against the savannah - there's a camouflage backdrop of pinstripes and expensively coiffured blond hair against which I can't see a thing. I have to rely on a running commentary from the people around me, who can spot a slight twitch from a couple of hundred yards, and when a painting by Chaim Soutine goes up and up and up and keeps going leaving its guide price of £3.5-£5m behind like a bad memory, it's like watching imaginary tennis: they crane left, crane right, crane left again. The hammer finally comes down at £7.8m and there's a collective sigh of relief. Even as a spectator, it's grippingly tense: art as adrenaline sport.

There's more overexcitement at the press conference afterwards. They've smashed record after record and taken huge, unparalleled amounts of money. And it's then that I start having my Eighties flashbacks, although this process is aided by the fact that I chat to Helena Newman, a senior director at Sotheby's, who has them for me. The evening, she says, had surpassed anything she saw back then.

'I joined the department in 1989 when it was the absolute peak. It was incredible, and then about nine months later it started to go down - it was something to do with Japanese interest rates - and from May to June, the market tumbled.

'This is a peak beyond anything we've ever seen before. There isn't any sense that it's slowing down. There's an enormous amount of wealth around at the moment - we have Russians, South-East Asians, Middle Easterners buying here. The strong pound means Americans want to sell here. And it's a self-perpetuating process. There were very strong prices in November, and that brings the quality buyers out, which brings out the sellers.'

Two nights later Cheyenne Westphal, the head of Sotheby's contemporary department, puts it even more plainly: 'People are not just making money these days. They're making fortunes - of a type that the world simply hasn't seen before. There's just more money around than there used to be.'

There is more money around. There's money everywhere. Record bonuses, amounting to £9bn, in the City. The marketing this week of the most expensive British properties ever - four penthouses in Belgravia for £84m each. Massive hedge fund payouts. According to a leader in last week's Economist, we are living in boom Britannia. We have never had it so good.

But still, you do have to wonder what's going on when you watch a Peter Doig painting sell for £5.7m - although actually I let Ivor Braka, a collector and dealer, who I happen to be standing next to, do the wondering. When the bidding reaches £3m he shakes his head. 'That,' he says, 'just makes a mockery of everything. What's a Turner worth then?' When it reaches £4m, he says, 'I'm not denigrating Peter Doig as an artist, far from it... but I mean, if you get £4m for a Doig...?' He doesn't finish the sentence though, because the bidding goes up and up and up. The room is jammed. There are people crammed into every bit of floor space. Braka is credited with being the single most influential champion of Francis Bacon's work, he's a serious collector and is intending to bid on an Auerbach, but he doesn't have a seat and is squashed in next to me in the press pen. The entire room is in uproar and when the hammer finally comes down on £5.1m (which translates as £5,732,000 when Sotheby's adds its commission), there's a round of applause.

'That is the equivalent of Macclesfield town winning the FA Cup,' says Braka. All around people are muttering and shaking their heads. No one pays any attention to the next couple of lots and then it's the Auerbach. There's been talk that this could be the painting that pushes him over the £1m level. But it goes way beyond that. Braka doesn't even lift his paddle and it's hammered down at £1.7m.

'So that's a new record?' I say.

'By a long, long way. I sold three Auerbachs last year. All of comparable quality. For between £600,000 and £800,000.'

It's the kind of returns that make the property market look sober and well-regulated. You can buy an Auerbach today and potentially make a million pounds on it by June. Who can resist those sorts of returns? Not the City boys loitering at the back with their Sloaney girlfriends. Or the art investment funds - the largest of which, I find out later, employs Braka as an adviser.

It's a different crowd here at the Contemporary sale. It's younger, there are fewer pinstripes, and there's a smattering of funny haircuts and difficult glasses clinging to the outer fringes. By the end of the week I'm recognising the faces: the elderly gentleman with the grey 'tache and peroxide fright wig. The German couple who both wear - him and her - identical black velvet suits, grey polo-necks and solid leather brogues. The Belgian billionaire - I chat to him on day one and assume he's in the Me-and-Mr-Fright-Wig category of hangers-on since he looks like neither the art type, nor the monied type, in a cheap suit and a polyester tie. And then I see him buy a Warhol and narrowly miss out on a Lichtenstein.

There's a whiff of expectation at every sale. As if the modern art world is a bomb, and no one knows exactly quite how or when it'll go off.

'All contemporary art is very fashionable at the moment, and the very most fashionable of all is Chinese contemporary,' Georgina Adam of the Art Newspaper tells me.

But then it's what Charles Saatchi's buying right now, and where he goes, others follow. 'Everybody's buying on the assumption that the Chinese will have so much money in the future,' says Adam. 'And that they'll want to buy back their own art. It's a very speculative, dangerous market in my opinion.'

'Speculative' is not a word that Sotheby's or Christie's want to hear. They issue press releases calling their clients 'informed, considered private buyers'. It's a boom, they say, but not a bubble. On the last evening sale of the week, the sale at Christie's which sees the Bacon painting go for £14m, I stand behind a man who keeps saying 'Suckers!' under his breath.

It turns out he's William Cash, the editor of Spear's Wealth Management Survey. 'It's clearly a bubble. Look! All the dealers are leaving. It's what's called a "shut-out" in the trade. It's identical to the Eighties except there's a new generation of suckers. And the new generation of suckers are the Russians. They're interior decorators. Not collectors.

'Sotheby's and Christie's say that it's different. That people are more knowledgeable. That they're not borrowing to buy art.

'How do they know? Nobody knew the Japanese were borrowing until the banks collapsed. Look, that's Larry Graff of Graff Diamonds leaving. He just got humiliated trying to buy the Warhol. He went up to three and a half million but it went for four and a half. When someone like Larry Graff is being blown out of the water, that has to tell you something.'

The fact is that paintings are now worth more than they were at the height of the Eighties boom, so the collectors who hung on to them have done well. It's the ones who were obliged to cut and run who suffered. David Kusin of Kusin & Company, a Dallas-based economic research company that analyses the art market, tells me that 'the present mania makes the Eighties look like a conservative garden party - and it's clearly not sustainable'.

But then people - the Bank of England included - have been saying that about the property market for yonks now, but while there's still money to be made, no one cares.

It's a strange and, in some ways, slightly quease-making world where high art meets high finance in a week-long sweaty-palmed embrace. I see some amazing pictures, pictures that have been buried in one private collection and that after a brief moment in a Mayfair salesroom will be buried in another private collection. Theatre, literature, film is something we take for the experience. It's art and art alone that can be owned like this - bought, sold, traded, used to flesh out asset portfolios.

And what of the artists? I can't believe it's good for them either. Although I'm basing this mostly on my experience of meeting the Chapman Brothers, who I'd happily see starving to death in a rat-infested garret. But is Peter Doig going to produce better or worse work knowing any new picture can be sold for five million quid?

I don't know. But like I say, I don't think anyone does. One of the failed bidders on the Doig was a 21-year-old Swiss boy-man whom I corner after the sale. 'Can I take your name?' I ask. 'Yes,' he says. 'It's Ricardo Rich. That's R-I-C-H.' Life, though, is usually harder than this. Rich people are very seldom called Mr Rich. Booms are not clearly labelled and defined. And bubbles are simply booms until they burst.

Silly money

5 Dec 1766 Date of first sale held in Pall Mall, London by James Christie, founder of Christie's

$104.168,000 Record sale at a fine art auction: for Picasso's Garcon a la Pipe, May 2004, Sotheby's, New York

£186,645,960 Value of total sales realised last week at Sotheby's, London

40 Record number of days for an auction sale (for Duke of Buckingham's collection at Stowe House by Christie's in 1848)

£2.51bn Total global arts sales by Christie's in 2006

85 Number of works sold for over £1m last week at Sotheby's and Christie's, London

£1.7m The record price for a photograph sold at auction (Andreas Gursky's 99 Cents II, Diptychon sold last week at Sotheby's, London)

£70.4m Total revenue from Christie's Post War and Contemporary Art Sale last Wednesday. This broke the record set by Sotheby's just 24 hours earlier for a contemporary art auction in Europe.